The odd thing about Modi’s mojo

Narendra Modi, India’s prime minister, was humbled in 2024. His party lost its national majority and had to start ruling in coalition. Policymaking looked listless for most of the next 12 months. Some thought the re-election of Donald Trump, with whom Mr Modi once got on famously, would strengthen his hand. Instead America’s president whacked most Indian exports with tariffs, which now add up to 50%.

Yet adversity, and the need to satisfy his coalition partners, seem to have made Mr Modi more pragmatic. Though he still indulges in divisive rhetoric, he has taken fewer actions to goad or bully India’s Muslims since his electoral setback. Instead, he has concentrated on economic reforms, which should help the country maintain its zippy growth rate. If he keeps that up, Indians will benefit hugely.

The government expects India’s economy to expand by 7.4% in the fiscal year that will end in March. It may soon be bigger than Japan’s and could overtake Germany’s by 2028. A decade-long effort to promote manufacturing is starting to show some results, despite American tariffs: India now assembles about a fifth of the world’s iPhones.

Mr Modi seems to recognise that keeping growth high will require more work. In the past few months his government has unveiled bankruptcy reforms, which should shorten drawn-out disputes, and simplifications to India’s bewildering national value-added tax, under which a bag of popcorn could attract one of three different rates. Officials have promised to cut the red tape that makes it so easy for corrupt inspectors to extort bribes to turn a blind eye, such as criminal penalties for a tiny misstatement of the weight of a packet of biscuits.

In November came helpful changes to labour laws, tidying up a mess of rules that have long given Indian companies perverse incentives to stay small. The government is working on a bill that could encourage private firms to fix rusty pylons and decrepit substations, thereby cutting the price of power.

On the international front, India has closed three trade agreements since the middle of last year: with Britain, New Zealand and Oman. It may soon announce a big new trade deal with the European Union. It is about to open trade talks with Canada. It says it will let foreign firms compete more freely in insurance and nuclear power.

Finally, India is patching up its economic ties with its giant neighbour. Relations with China froze in 2020 after Himalayan border clashes in which soldiers were beaten to death or drowned in a river. But last year Mr Modi met Xi Jinping in China—his first visit there for seven years. Direct flights between the two countries restarted in October, after half a decade’s pause. For years India barred much Chinese investment, and made it hard for Chinese executives to get visas. Conscious that it needs Chinese cash and know-how, it is beginning to ease back on such excessive restrictions.

Will Mr Modi continue in this welcome direction? Thumping victories in recent state elections have restored some of his party’s swagger. And the outside world is looking less hostile. Not only has there been a thaw with China; Mr Trump’s fury with India has eased since it cut back on purchases of Russian oil. The danger is that Mr Modi’s appetite for reforms may go soft, if they can no longer be sold to his nationalist supporters as a necessary sacrifice to strengthen India in an unfriendly world.

The recent reforms are not enough. Some merely correct recent errors. Although India’s average tariff rate is drifting down, it is still higher than it was when Mr Modi first won power in 2014. Much-needed reforms to agriculture are still locked in a box marked “too hard”. So are changes to make it easier for companies to acquire land. India’s awful schools continue to waste hundreds of millions of young minds. Smog and traffic jams steal some of the boost India could gain from urbanisation. Unforced errors remain common: this month India’s Supreme Court alarmed foreign investors with a ruling that has thrown into confusion what tax they must pay on capital gains. And Mr Modi has not lost his authoritarian instincts, even if he has curbed them somewhat.

Yet as America grows increasingly protectionist and erratic, India’s reformist turn deserves praise. Mr Modi could have responded to his setback at the ballot box, or to Mr Trump’s tariffs, in a much less constructive manner. Indians seem to have recognised that building a whizzier economy is the best way to gain global clout. Mr Modi should double down on economic pragmatism, and keep his divisive impulses in check. ■